Gold PriceComments Off on Solutions for Everything, Answers to Nothing

Could one day’s Financial Times be the best £2.50 humanity ever spends…?

WEDNESDAY we picked up an issue of the Financial Times, writes Bill Bonner in his Diary of a Rogue Economist – the so-called pink paper due to its distinctive color.

We wondered how many wrongheaded, stupid, counterproductive, delusional ideas one edition can have.

We were trying to understand how come the entire financial world (with the exception of Germany) seems to be singing from the same off-key, atonal and bizarre hymnbook. All want to cure a debt crisis with more debt.

The FT is part of the problem. It is the choirmaster to the economic elite, singing confidently and loudly the bogus chants that now guide public policy.

Look on practically any financial desk in any time zone anywhere in the world, and you are likely to find a copy. Walk over to the ministry of finance…or to an investment bank…or to a think tank – there’s the salmon-pink newspaper.

Yes, you might also find a copy of the Wall Street Journal or the local financial rag, but it is the FT that has become the true paper of record for the economic world.

Too bad…because it has more bad economic ideas per square inch than a Hillary Clinton speech. It is on the pages of the FT that Larry Summers is allowed to hold forth, with no warning of any sort to alert gullible readers. In the latest of his epistles, he put forth the preposterous claim that more government borrowing to pay for infrastructure would have a 6% return.

He says it would be a “free lunch” because it would not only put people to work and stimulate the economy, but also the return on investment, in terms of GDP growth, would make the project pay for itself…and yield a profit.

Yo, Larry, Earth calling…Have you ever been to New Jersey?

It is hard enough for a private investor, with his own money at stake, to get a 6% return. Imagine when bureaucrats are spending someone else’s money…when decisions must pass through multiple levels of committees and commissions made up of people with no business or investment experience – with no interest in controlling costs or making a profit…and no idea what they are doing.

Imagine, too, that these people are political appointees with strong, and usually hidden, connections to contractors and unions.

What kind of return do you think you would really get? We don’t know, but we’d put a minus sign in front of it.

But the fantasy of borrowing for “public investment” soaks the FT.

It is part of a mythology based on the crackpot Keynesian idea that when growth rates slow you need to stimulate “demand”.

How do you stimulate demand?

You try to get people to take on more debt – even though the slowdown was caused by too much debt.

On page 9 of Wednesday’s FT its chief economics commentator, Martin Wolf (a man who should be roped off with red-and-white tape, like a toxic spill), gives us the standard line on how to increase Europe’s growth rate:

It is not enough for people to decide when they want to buy something and when they have the money to pay for it. Governments…and their august advisers on the FT editorial page…need a “strategy”.

On its front page, the FT reports – with no sign of guffaw or irony – that the US is developing a “digital divide”.

Apparently, people in poor areas are less able to pay $19.99 a month for broadband Internet than people in rich areas. So the poor are less able to go online and check out the restaurant reviews or enjoy the free pornography.

This undermines President Obama’s campaign pledge of giving every American “affordable access to robust broadband.”

The FT hardly needed to mention it. But it believes the US should make a larger investment in broadband infrastructure – paid for with more debt, of course!

Maybe it’s in a part of the Constitution that we haven’t read: the right to broadband. Maybe it’s something they stuck in to replace the rights they took out – such as habeas corpus or privacy.

We don’t know. We only bring it up because it shows how dopey the pink paper – and modern economics – can be.

Quantity can be measured. Quality cannot. Broadband subscriptions can be counted. The effect of access to the internet on poor families is unknown.

Would they be better off if they had another distraction in the house? Would they be happier? Would they be healthier? Would they be purer of heart or more settled in spirit?

Nobody knows. But a serious paper would at least ask.

It might also ask whether more “demand” or more GDP really makes people better off. It might consider how you can get real demand by handing out printing-press money. And it might pause to wonder why Zimbabwe is not now the richest country on earth.

But the FT does none of that.

Over on page 24, columnist John Plender calls corporations on the carpet for having too much money. You’d think corporations could do with their money whatever they damned well pleased.

But not in the central planning dreams of the FT. Corporations should use their resources in ways that the newspaper’s economists deem appropriate. And since the world suffers from a lack of demand, “corporate cash hoarding must end in order to drive recovery.”

But corporations aren’t the only ones at fault. Plender spares no one – except the economists most responsible for the crisis and slowdown.

“At root,” he says of Japan’s slump (which could apply almost anywhere these days), the problem “results from underconsumption.”

Aha! Consumers are not doing their part either.

Summers, Wolf, Plender and the “pink paper” have a solution for everything. Unfortunately, it’s always the same solution and it always doesn’t work.

Self-directed Western investors’ gold sentiment leaps to 7-month high as price drops…

The GOLD PRICE, after a quiet summer, last month delivered the sharpest Dollar drop since 2013’s crash found its floor, writes Adrian Ash at BullionVault.

Private Western investors reacted the same way as last year too, with buyers outnumbering sellers to push our Gold Investor Index up to a 7-month, rising at the fastest pace since April 2013.

The Gold Investor Index is calculated using proprietary data from BullionVault, the 24-hour precious metals exchange which leads the online market for physical bullion.

Instead of surveying intentions, the index shows the balance of net buyers over net sellers across the month as a proportion of all gold owners at the start, rebased to 50.

To learn more, see this May 2013 article in the London Bullion Market Association’s Alchemist magazine. The chart above shows how the Gold Investor Index has varied over the last three years.

As you can see, the balance of buyers over sellers jumped during gold’s spring 2013 crash. It rose sharply again last month. But while the number of people choosing to hedge against financial risk with gold’s lower-cost insurance continues to grow, it must be said: Whether from Asian jewelry buyers or self-directed Western investors, a gold market led by bargain-hunting alone cannot run sharply higher.

September typically sees Dollar gold prices rise. It remains the best-performing month historically since 1968. But gold last month lost 5.8% to $1216 per ounce, the sharpest month-end drop since June 2013.

Back then, Dollar prices fell 14.5% to hit $1180 per ounce – then a 3-year low – capping a quarterly plunge of some 25%. The spring 2013 gold crash unleashed a surge of private investors wanting to buy. But these new buyers each tended to buy smaller amounts than those existing holders who sold.

September 2014’s new discounts in Sterling and Euro terms were more muted. Because those currencies also slipped against the Dollar. Gold ended the third quarter of 2014 at 3-months of £750 and €964 per ounce, down 3.7% and 1.7% respectively from the last day of August. But the reaction amongst self-directed investors was the same – a jump in the number of bargain-hunters using BullionVault to buy gold both from North America and Western Europe.

By weight, and in contrast to the spring 2013 crash, that also led to a further rise in the total quantity of gold bullion now held by Bullionvault users…up 0.3% to new records near 33.2 tonnes. Again, this marks a stark contrast to what money managers are doing with gold. Exchange-traded gold trust funds (gold ETFs) saw monthly outflow of $1.67 billion, according to the Markit data agency – the biggest this year. Leveraged speculators betting on prices through Comex futures and options meantime slashed their net bullishness nearly 50% to the lowest level of 2014 so far.

For now then, the running in prices is being dictated by money managers continuing to cut allocations, or grow their betting against gold going higher.

Self-directed private investors, on the other hand, continue to buy the dips. They are, after all, managing their own money and their own risk.

Gold PriceComments Off on All Eyes on US Fed as Gold Price Bears Risk "Short-Covering Rally" from Lowest Weekly Close in 36

GOLD PRICES rallied $10 per ounce from a new 8-month low of $1225 hit at the start of Asian trade Monday, trading 0.5% above last week’s finish in London.

European stock markets held flat ahead of this week’s US Federal Reserve statement on rates and QE on Wednesday, plus the start of the Eurozone central bank’s new round of long-term bank financing on Thursday.

Losing 2.7% against the Dollar, gold prices ended last week with their lowest Friday PM Gold Fix in London since 27 December 2013, down at $1231 per ounce.

Silver on Monday held steadier than gold prices, unchanged around $18.65 per ounce to trade some 1.0% above last Thursday’s new 14-month low.

“With last year’s double bottom of $1180 not too far off,” says Jonathan Butler at Japanese conglomerate Mitsubishi, “attention will be on the Fed’s comments on Wednesday.”

“A hawkish stance” – such as the loss of the words “considerable time” from the Fed’s forecast for its likely delay to raising interest rates from zero – “could see further strengthening of the Dollar and potentially a further gold capitulation,” says Butler.

“If the market view the Fed’s comments as too dovish, gold could stage a reversal.”

“We could see a short-lived technical bounce,” reckons Ed Meir at US brokerage INTL FCStone, but “traders will likely use any rallies as a selling opportunity.”

In US derivatives, “Some short covering and bargain hunting [was] seen down at the lows overnight,” says a note from brokerage Marex Spectron’s David Govett in London.

Latest data on US futures and options show speculative traders as a group grew their “short” betting against gold for the 4th week running in the week-ending last Tuesday, taking their “net long” gold position (of bullish minus bearish bets) to its lowest level since mid-June.

Speculative betting against silver prices meantime rose for the 6th week in a row, up to a level only surpassed 3 times in the last 20 years, all in early summer 2014 when the metal began a rapid 16% rally.

“Money managers have contributed to the fall in both gold and silver prices,” says the commodities team at Germany’s Commerzbank.

“Given that prices have dropped further since the reporting date, net long positions have no doubt also been reduced further.”

“Physical buyers are still absent, unwilling to support prices on fresh lows.”

With Tokyo closed for Japan’s national Respect for the Aged holiday, “Liquidity was already on the thin side,” says the Asian desk of Swiss refining and finance group MKS, “but once the Shanghai Gold Exchange opened up more physical interest began to trickle in – finally!”

Despite slipping from Friday’s close in Yuan terms, Shanghai’s main gold contract more than doubled its premium Monday to more than $5 per ounce over comparable London quotes.

With Scottish opinion polls meantime putting the “Yes” and “No” camps neck-and-neck for Thursday’s independence vote, the British Pound held onto last week’s bounce from new 2014 lows.

Emerging-market central banks should have stopped buying. Gold miners should have sold forward their future production to lock in record prices. And gold investors should have taken profits…quick!

Gold sank 20% between September and the last day of 2011. It then rallied only to plunge 25% in spring 2013. Since then it has now traded dead-flat for 12 months, some 35% below its peak of three years ago.

Should we all have seen it coming? I think not.

“Business is certainly strong,” as Paul Tustain, founder and CEO, noted to me here at BullionVault that same, hectic week in 2011. “But it’s still a tiny proportion of the investing public.

“The huge majority of people and portfolios still have no gold at all. What we’re seeing across the market is the prices being marked up by the dealers in search of supply, but no-one is being flushed out.

“Gold owners simply don’t want to sell, not while the economic situation threatens the wholesale destruction of value in currency assets.”

Re-read that last sentence again. Then cast your mind back to late-summer 2011…

US government debt was downgraded by the credit agencies;

English cities and towns descended into rioting, looting and arson;

Europe’s single currency experiment looked set to explode in general strikes and violence.

Put another way, unemployment in rich Western countries was surging to Third World levels. The state was losing control. And nothing was “risk-free” anymore.

Clearly, some smart traders chose to quit getting long of gold. Because prices fall when bids refuse to meet offers, and fall they did. But to the best of my knowledge, no pundits or analysts called the top in gold prices. Not with any more confidence than the perma-bears who repeatedly called the top from 2009.

How could they? The economic, financial and social situation across the West hadn’t been this bad since perhaps 1939.

Oh sure – Warren Buffett, the world’s most famous money manager (and one of its most successful) once advised investors to “Be fearful when others are greedy and greedy when others are fearful.” But you’d need some damned cold logic to overcome the fear sweeping the rich West in late-summer 2011.

Indeed, you would have needed to get your head examined.

Just what were the odds of a Eurozone break-up back then – better than evens? And the consequences of that? They could scarcely be imagined. Not when the only paper “safe haven”…US Treasury bonds…faced a genuine threat of default thanks to Washington politicians scoring points against the White House via the debt ceiling farce.

In short, the gold market was NOT mis-pricing risk in September 2011. Nor were new buyers. That summer’s surge to record levels simply reflected the very strong chance that the crash of 2008 was only a warm-up. Investors, households and media all agreed. This time, the financial crisis really had landed.

So forget hindsight. Buying gold at 2011’s record prices was not a “mistake”. Even if it has proven costly to date.

There’s nothing today which makes those losses less painful. But if you view every decision you make as an all-in bet, then insurance will always look like “dead money”…unless disaster strikes.

What if the crisis of September 2011 hadn’t eased off? Which outcome would you really prefer?

As I told Alan Titchmarsh three years ago:

“If you think the financial crisis is all over and everything’s going to be sorted out, then gold [at $1920…£1194…or €1375] probably looks pretty expensive as insurance for your other investments right now.”

Gold is a lot cheaper today. Yet I’m far from sure the financial crisis has truly passed over just yet.

I guess the European Central Bank agrees, now printing money to try and stoke the economy. Odds are that every other monetary power holding the cost of money at zero for the fifth year running thinks the same.

Maybe someone should tell the stockmarket. But then, no one rings a bell at the top. Not one you can hear at the time.

DAVID SADOWSKI is a mining equity research analyst at Raymond James Ltd., and has been covering the uranium and junior precious metals spaces for the past six years.

Here he tells The Gold Report‘s sister title, The Mining Report, why the current bear market in junior uranium miners will prove only temporary…

The Mining Report: In past interviews with Streetwise Reports, you predicted that the price of uranium will rise this year. But that has not panned out. Why not?

David Sadowski: Simply put, there is a short-term supply problem in the uranium industry. We believe, however, in the long term, supply will not be able to keep up with demand growth. The point at which we previously expected demand to outstrip supply has been pushed out by a couple of years. That development has impacted the price in recent months, as well as Raymond James’ outlook for the price going forward.

The three main reasons for continued global growth of uranium mine production are the persistence of long-term fixed-price sales contracts, the intransigence of government producers who believe that security of supply is more important than mine economics, and byproduct uranium production. Secondary supply sources also remain robust.

TMR: Would you explain how these situations interrelate?

David Sadowski: Demand is lagging because Japan has been slower than expected to resume operations at its nuclear reactors. The Japanese reactors are not consuming uranium at the moment, but the Japanese utilities are continuing to take delivery on many of their supply agreements, causing their inventories to rise. A belief in the market that uranium might be dumped has, in part, kept other global utilities on the sidelines, resulting in lower levels of uranium buying and lower prices. And while uranium oxide “yellowcake” deliveries have continued to Japanese buyers, those buyers have slowed the movement of that material into the rest of the fuel cycle, which has decreased demand for conversion and enrichment products.

On the enrichment side, excess capacity has resulted in “underfeeding”. The centrifuges at the enrichment plants are always spinning. The plants are paid to supply a certain level of enrichment to their customers. And during times of lower demand, they can utilize otherwise empty centrifuges to squeeze out more uranium product.

An apt metaphor for this process is orange juice. Imagine that you are running a juice bar with 10 juicing machines that are always spinning. Your customers bring you oranges and sign a contract to take delivery of a set amount of juice from those oranges. But suddenly you lose 20% of your customers. They stop bringing you oranges and they no longer pay you for the juice. What are your options to make up for that lost revenue? Given that all 10 juicing machines must continue to run, you can take the oranges that would under normal circumstances be squeezed by eight machines and instead run them through 10 machines, squeezing more juice out of each orange. The juice in excess to what the eight remaining customers have agreed to buy is available to the juice bar owner to sell to other customers.

That is the same type of activity that is going on in the uranium space. Enrichers with excess capacity especially during a period of relatively weak enrichment or “SWU” prices can squeeze more enriched product out of the material being provided to them, which generates excess uranium that the enrichers sell to others. Given the protracted outage of Japanese nuclear reactors, this squeezed source of supply has been greater than expected. In part due to our revised estimate that only one-third of Japan’s nuclear fleet will return to operations, we expect underfeeding to continue to exacerbate oversupply for some time.

TMR: What about the uranium extracted from Russian nuclear warheads?

David Sadowski: Similarly, with respect to Russia, the end of the Megatons to Megawatts high-enriched uranium (HEU) deal was long anticipated to usher in a new period of higher uranium prices. But the same plants that were used to down-blend those warheads can now be used for underfeeding and tails re-enrichment. In this way, the Russian HEU-derived source of supply that provided about 24 million pounds to the market did not disappear completely; the supply level was just cut roughly in half. Meanwhile, uranium mines, in aggregate, have increased their output – even though prices are now well below average production costs. Kazakhstan, for example, has continued to grow its uranium industry, despite recent guidance from officials in Kazakhstan to the contrary.

Furthermore, since Fukushima, only one major uranium mining operation has closed down due to weak prices. The high-cost Ranger mine in Australia, which has been processing its stockpiles since 2012, has defied protests from locals and restarted production following a major accident in late 2013. And Cigar Lake in Canada and Husab in Namibia are charging into production, even in this oversupplied environment. The bottom line is that oversupply will persist until 2020.

TMR: How will that solemn reality affect future prices?

David Sadowski: Current prices are untenably low and some producers are refusing to sell at rock-bottom prices. Upward pressure on prices into the $35 per pound range should occur as utilities buy more uranium in the marketplace, and as secondary trading activity among financial entities picks up. The biggest factor is the behavior of the end-users of uranium, the nuclear utilities. Given what we know from available data, global utilities are going to have to sign a lot of new supply contracts to meet their uncovered reactor requirements in the years 2017 and beyond.

But looking at current utility-held inventories and the global supply/demand picture over the next five years, we predict that the utilities will not be rushing to sign new deals. A major upswing in prices toward mine incentivizing levels of $70/lb is thus at least a couple of years down the road. The spot price is $28/lb today. It should average $35/lb in 2015 – a 20% rise and we see US$70/lb in 2018. Furthermore, it should be noted that this outlook can change in a split second. A flood at Cigar Lake, sanctions against Russian nuclear fuel exports, a major mine shutdown – if any of these events occur, the equation changes and prices could rise a heck of a lot faster, comparable to the rise in 2006–2007 and in late 2010.

TMR: What do you look for in a uranium mining junior?

David Sadowski: The best junior opportunities are to be found in companies with best-in-class assets, access to capital, and the potential for value-added news flow. Solid management teams, clean capital structures and trading liquidity are also key.

TMR: Is there synergy in going after both uranium and gold?

David Sadowski: Uranium deposits can occur alongside other metals, improving mine economics. In South Africa and Australia, uranium is mined as a byproduct of gold with a positive impact at those mines. In other cases, gold, nickel, molybdenum, and other metals can be an encumbrance to primary uranium production and can negatively impact costs.

Gold PriceComments Off on Gold Prices "lacklustre" but "supported" with uncertainty in Ukraine, US retail sales flat

SPOT GOLD PRICES remained supported above $1300 on Wednesday morning in London but rallied following the US retail sales data to almost $1315, a level first reached this week on Tuesday. Asian stock markets traded slightly higher, with Japan’s Nikkei extending its recovery from two-month low. Europe followed the lead and traded also higher, with the Dax gaining 1% ahead of tomorrow’s German GDP data.

US retail sales were flat in July, “pointing some loss of momentum in the economy”, according to Reuters. July’s reading was the lowest since January 2014.

Silver tracked gold and after dropping below the level of $20 per ounce this morning only to recover after the retail sales data release. Less than 48 hours away from the last Silver Fix, the market is impatient to know how the new London Silver Price will affect the trading.

Brent crude fell to thirteen month low to $102.39 per barrel. In the currency markets, the Euro traded lower against the US Dollar, at $1.3352 this morning. Ukrainian Grivna fell to a record low in the country’s history amid the economic crisis and the Eastern Ukraine armed conflict.

Russian humanitarian aid convoy resumed its journey to the south of Ukraine. Uncertainty remained about how the aid would be delivered, as Russia was thought to be using the convoy as an excuse for military action in Ukraine.

“Precious metal markets were lacklustre as rising geopolitical tensions were countered with a slightly stronger USD,” says a commodity note from ANZ. Gold prices pushed above $1315 yesterday following the news that Ukraine would block a convoy of Russian trucks that carried humanitarian aid. In the evening investor appetite diminished and the EUR weakened against the USD.

“It is clear that safe haven buying is providing a base of support, rather than a fillip for a move higher,” it adds pointing out that the outlook for prices remains subdued.

Commerzbank emphasizes on its technical note that the market continues to see recovery off its 61.1% retracement at 1280. “Our outlook is bullish while above 1280… Resistance lies at 1335 ahead of the July high at 1345,” adds the German bank in Frankfurt.

Gold prices at the Shanghai Gold Exchange traded at a premium of $2 per ounce above London quotes at session closing time in China.

The Bank of England halved its forecast for average wage growth, to 1.25% this year. Following Bank’s governor Mark Carney speech on the quarterly inflation report, the Pound Sterling hit a ten-week low against the Dollar, pushing gold price in Sterling away from 4-session low to over £783.

Gold futures on the COMEX were little changed despite geopolitical concerns yesterday. The most active gold contract for December delivery rose 10 cents, or 0.01 percent, to settle at 1,310.6 dollars per ounce.

GOLD PRICES reached a weekly gain of 2.2% at $1322.55 per ounce Friday morning in London, amid a drop in European and American stock markets and renewed violence in Ukraine and the Middle East.

The US President authorised limited air strikes against Islamic State (formerly ISIS).

Rocket fire from Gaza across the border resumed after a 72-hour ceasefire, so did Israeli air strikes.

Meantime, the Euro versus Dollar briefly touched $1.3400 Friday morning before falling back under this 9-month low last broken at the end of July.

Geopolitical headlines took the fore and not economic data. “Yesterday, a Ukrainian fighter jet was shot down by rebel forces and this started the rally in gold,” writes David Govett at London metals brokerage Marex Spectron. Then, President Obama authorised military strikes in Iraq and this morning the truce in Gaza ended.

“All in all, pretty much a perfect storm for gold prices.”

Gold prices in USD were set to approach the weekend at a three-week high ending a long run of weekly losses.

“Ongoing geopolitical events in Russia/Ukraine and the Israel/Palestine conflict [gave] support to the precious complex,” says the Swiss precious metals refinery group MKS in a note, adding that traders moved out of falling equities into safe haven assets providing gold with a gain of 9.2% in 2014 so far.

Panic in the equity markets, potential US strikes and the Ukraine crisis offered a safe haven-demand for gold, comments Wing Fung Precious Metals in Hong Kong, adding that “gold could climb quickly up to $1325 per ounce.”

However, seeing enhanced volatility short term, Govett believes that when “situations calm down or resolve themselves, the price will come straight back down again.”

Silver lagged behind gold but crept back up and broke the $20 mark Friday morning, a level it kept from June 19 until last Wednesday, after touching seven-week lows earlier this week. Silver prices were on track for a loss of around 1% on the week so far.

The Bank of England kept interest rates at their 5-year record low of 0.5% on Thursday. Going into the weekend gold prices for UK investors were set to gain 1.7% and reach the highs of mid-April, at around £782.55 per ounce.

Another central bank declaration of note: ECB president Mario Draghi confirmed yesterday the European quantitative easing was in preparation.

Gold prices in Shanghai meantime maintained a premium of $1-2 over and above London prices this week amid falling Asian stocks and China’s trade surplus record high.

The physical gold holdings of the giant gold ETF, the SPDR Gold Trust (NYSEArca: GLD), shed more than 2 tonnes Thursday but remained unchanged Friday for a total of 797.654 tonnes.

India’s Gems & Jewellery Export Promotion Council said gold bar imports to the world’s former No.1 consumer nation doubled last month from the same month in 2013.

But in what Reuters calls “a seasonally slack period”, improved supplies have seen Indian premiums over London gold prices halve this week, falling as low as $5 per ounce vs. late 2013’s record level of $160 when the current import curbs first hit.

“It will be political events that provide the market with some potential direction,” says a Singapore dealing note after warning yesterday morning that gold and silver “look[ed vulnerable to a correction lower.”

The Gaza death-toll from the last fortnight’s conflict with Israel was today put above 800.

Moscow’s stock market meantime fell hard as Dutch and Australian police reached the crash site of Malaysian flight MH17 in eastern Ukraine, dropping 2.1% for the week – but holding well above this spring’s 4-year lows – after the Russian central bank surprised FX traders with a half-point hike on interest rates.

Now at 8.0%, Russia’s key overnight rate is only just ahead of Russia’s latest inflation reading.

The Ruble rallied against the Dollar, but the British Pound fell to 1-month lows as UK GDP data met analyst forecasts for 3.1% annual growth.

That buoyed the gold price in Sterling at £762 per ounce, down 0.7% on the week.

“Gold plunged Thursday,” says London market maker Scotia Mocatta’s New York desk in its daily note, “falling below both the 100-day and 50-day moving averages.”

What Scotia’s analysts call “bearish trend and momentum indicators” are now “providing for ample room to the downside.”

“The current correction should fetch 1285/81, mid-June highs,” says technical analysis from Societe Generale, after the metal “failed to establish itself” at late-June’s return to April’s high of $1331.

Gold prices, the SocGen note concludes, will now need “a break above [July’s] steep resistance line” coming down from the peak at $1345 and now sitting at $1300 “to prompt positive signals.”

And here, 100 years to the day after the approach of World War I killed the Gold Standard stone dead, the world’s monetary system risks breakdown again.

Again you could blame war in a poor corner of Europe. Again, that war could be cast as a big power demanding a small neighbor says “sorry” – then Serbia for the murder of a fat-necked Austrian prince, now Ukraine for ousting its fat-headed Moscow-backed president.

If irony suits, it only tastes richer when you think this week also marks 70 years since the Gold Standard’s replacement was put together as the war that followed the war to end all wars finally slaughtered itself to a close. But that shadow system…of invisible gold and all-too visible paper…didn’t quite die when the Dollar-Exchange system lost its link to bullion. US president Richard Nixon “closed the gold window” at the New York Fed in August 1971, yet the Dollar still rules today. So like world trade needed access to the City of London a century ago, clearing funds through a US bank is vital for world trade today.

Say US clearing becomes unavailable – or untrusted for credit-default or political reasons. Either trade will shut down (see the post-Lehmans’ crisis of 2008), or it will find other systems to use. Comic little pops like bitcoin might suggest that’s where apolitical free trade is headed, onto Silk Road and elsewhere.

Back to 1914, and “It may be,” one merchant banker noted before the July Crisis hit London, “that hides and rabbit skins are being sold from Australia to New York, or coffee from Brazil to Hamburg.” Either way, and whatever was being shipped to wherever, in every such cross-border deal “the buyers and sellers settle up their transaction in London.”

That remains true of wholesale gold and silver today. Lacking any mine production, and with no consumer demand or refinery output to speak of, the UK still hosts the world’s physical bullion market, settled in London’s specialist vaults and ready for “digging out” onto a forklift truck before being shipped to the new owner should they ever want it. From Arizona to Beijing, Perth to Qatar, the world trades market-warranted London Good Delivery bars. Those same standards apply in most local non-London markets as well. Great Britain still rules in gold, an echo of the high classical Gold Standard shot dead a century ago.

What had stopped the world’s financial heart pumping in London? Scalded in late June 1914 by unknown Serb teenager Gavrilo Princip shooting dead the unlikable Archduke Franz Ferdinand, Austria handed its “belligerent ultimatum” to Belgrade on the evening of Thursday 23 July. Vienna’s 10 outrageous demands made rejection look certain. (Serbia agreed to four, only to find Vienna dismiss its reply and start shelling regardless). Financial markets finally panicked the next morning, at last. They had been slow to take fright, as Niall Ferguson notes of the bond market, distracted by more trouble in Ireland and the coming summer vacation. But now London’s bankers…creditors to half the world’s cross-border transactions, according to Jamie Martin in the London Review of Books…awoke to find their debtors unable to pay. Because “it suddenly became difficult for foreign borrowers to remit payments” anywhere, London would not extend fresh credit. So the world couldn’t raise the loans it needed to settle its debts, and the Sterling bill of exchange – “the world’s premier financial instrument” – went entirely offline.

Sterling bills had been crucial. These bits of paper turned the Classical Gold Standard into that “period of unprecedented economic growth, with relatively free trade in goods, labor and capital” which misty-eyed gold bugs might think came thanks, between about 1880 and the rude end of July 1914, to physical metal alone. Promissory and transferable notes, typically with a 3-month maturity as Martin explains in the LRB, Sterling bills were accepted by traders on one side of the world in payment for goods sent to the other, and then sold to a local bank for cash. Merchant bankers in London then accepted and sold the bills on again, with the original debtor perhaps buying and sending another Sterling bill – rather than shipping physical gold – to settle the deal. Around it all went again. Until Austria’s ultimatum to Serbia stopped it.

Yes, the Sterling standard limped on, and yes, so did something like the Classical Gold Standard after the guns of August finally fell silent in 1918. But private gold had underpinned the whole system before. You could convert cash into gold at your bank, giving them every reason to offer good rates of interest instead. A universal equivalent for all major world currencies, it was vital that the gold was mostly privately owned, rather than trapped in government or central-bank hands (although that was already changing, with fast-growing national hoards announcing the rise of the warfare- and welfare state in the decade before Princip shot the Archduke, much like the political earthquake of WWI had already struck Britain with the People’s Budget five years before). But shipping bullion bars or coin remained clumsy, slow, risky, and thus expensive. So it was paper bills which released the value of the 19th century’s torrent of gold, first Californian, then Australian and finally South African, to grease the first era of globalization.

By the eve of Austria’s ultimatum to Serbia, the bill on London offered to some “a better currency than gold itself,” as a Canadian banker put it, “more economical, more readily transmissible, more efficient.” The City of London, capital of the world, stood ready to buy and sell whatever was wanted.

Nevermind. As Professor Richard Roberts explains in his excellent new Saving the City (free sample here), come 27 July – the Monday after the Serbs got Vienna’s demands – London’s money market was effectively shut. On Tuesday, with major shares like copper-mining giant Rio Tinto dumping 25% in a week, the London Stock Exchange suspended trade for the first time since it opened in 1801. From Wednesday 29 July, commercial banks in Britain stopped paying gold to the long queues of savers pulling out their deposits. But the banking run simply moved to the Bank of England itself, as people lined up on Threadneedle Street to swap the paper £5 notes they’d been given for Sovereign gold coins instead, sucking out £6 million of bullion in three days.

To stall the outflow, the annual Summer Bank Holiday was extended to nearly a week, from Saturday 1 to Friday 7 August. Ahead of the banks reopening, politicians desperate to lock down more gold for the national hoard “vociferously denounced the [private] hoarding of gold in speeches in the House of Commons,” says Professor Roberts. But by then, Great Britain had already declared war on Germany on Tuesday the 4th. The Gold Standard would never recover, built as it was on free trade, Britain’s imperial Navy and those Sterling bills of exchange on London’s credit.

Yes, London’s role as gold clearing house continues today (for now). But total war needed endless state spending. So the free-trade basics – and bullion limits – of the global Gold Standard could no longer apply. Private gold shipments were replaced by government-to-government transfers inside the Bank of England, the Bank for International Settlements, and the New York Fed…before French warships hauled metal to Paris, and Russian Aeroflot jets swapped Kremlin gold for Canadian wheat. London’s Sterling bills have meantime long rotted as the world’s key means of exchange. Which brings us to the US Dollar here in 2014.

French bank BNP Paribas now faces a $9 billion penalty “and a one-year suspension in 2015 of direct US Dollar clearing on its and gas, energy and commodity finance businesses,” explains Pensions & Investments Online, after pleading guilty to $30 billion of transactions “with countries that are under US government sanction.”

That’s some slapdown. “Temporarily restricting its ability to handle transactions in Dollars,” says Bloomberg, “would present BNP with administrative costs and could test the willingness of clients to remain with the bank.”

Financing crooks or clearing their deals is a bad thing, of course. But the list of countries wearing “US goverrnment sanction” only gets longer. Parking or trading your money only gets tougher if your home-state doesn’t suit what Washington thinks. Yes, a London government spokesman when asked Wednesday said there is a link – “a correlation” indeed – between the UK’s new sanctions against Moscow and outflows from London of Russian oligarchs’ cash. “That is certainly the case,” as money scared of being frozen or seized gets out while there’s still time. But London or Frankfurt today is nothing next to the United States’ place in clearing global finance.

“No international bank,” as the Financial Times noted last week, “can operate without access to the US money markets.” And with access now restricted, claims FTfm columnist John Dizard, thanks to “dangerously stupid punitive actions and fines levied on banks using the international Dollar clearing system [means] the world is finding ways to get along without the Dollar.”

Chief amongst them, according to Dizard’s shadowy “sources”, is gold – “the most expensive and least convenient of all monetary alternatives to the Dollar.” Is he kidding? Perhaps not.

“Gold is very heavy to carry and often has to be re-assayed by the person accepting it as payment,” Dizard goes on, “since there is often a lack of trust among participants in the off-the-books transactions that use it.” No London Good Delivery and its chain of integrity here, in short. But where the rules roll over the trade, as India’s surging gold smuggling proves, the trade will find a way if it must.

“Not many transactions or investments are actually invoiced in gold as such,” says Dizard. “Instead gold is used as the settlement medium rather than for the price quotation.”

So welcome to our neo-Classical Gold Standard. “Gold’s popularity as a medium of international exchange,” Dizard says, “has been soaring.” The US might yet adapt, and accept that everyone pays who uses the Dollar, rather than inviting the world to find a replacement instead. Legal drug dealers in the United States, after all, need somewhere to bank their profits too.

IT WAS something of an irony last week when the idiots savants who constitute the upper ranks of the ineffable current incarnation of the IMF decided briefly to forgo their penchant for the politics of the Montagnard – more inflation, higher wages, death to the speculators, les aristocrats à la lanterne, that sort of thing – in favour of those of the ancien régime, writes Sean Corrigan of Diapason Commodities at the Cobden Centre.

Specifically, this took the form of updated proposals for a ‘Visa’ of the kind twice instituted in early 18th century France; the first to try to clear up the fiscal mess which was the principle legacy of the military vainglory of the just departed Sun King and a second time to mop up after that QE disaster of its time, John Law’s infamous ‘System’.

Sorting the participants into five classes whose activities were deemed to have been increasingly speculative – and hence liable to more swingeing penalties – those in charge of the Visa saw to it that the bigger players (or at least those bigger players unable to use their royal connections to secure themselves an indemnity) suffered haircuts, retrospective tax assessments, forcible debt extensions, property confiscation – and, in one or two cases, a salutary trip to the Bastille.

Jump forward three centuries and in its latest position paper on sovereign debt ‘resolution’ the IMF is drooling about dipping, in a not wholly dissimilar fashion, into people’s pension funds and insurance policies – since these are seen to be easy targets – as well as about imposing arbitrary prolongations of tenor on outstanding securities should the state’s chronic mismanagement end up rendering it temporarily unable to entice sufficient new or repeat suckers into enabling the maintenance of its naked fiscal Ponzi scheme.

We are all for adopting a stance of unsentimental realism when it comes to facing problems of over-indebtedness and, further, that we have long bemoaned the readiness of governments to swell their own commitments in the aftermath of financial crises, not just because of the inherent cronyism and inequity which riddles most TBTF assistance packages, but because sovereign debt is intractable in a way that private sector obligations generally are not. We are, therefore, more than happy to see all breaches of contract – which is what the unpayability of a debt involves – dealt with in as clinical and judicial way as possible, no matter whether these failures are misjudgements, examples of malfeasance, of ‘acts of god’. Moreover, we are exceedingly happy to see anything which reminds people that, despite the modern fiction of the ‘risk-free’ rate which attaches to them, Leviathan’s IOUs have always been among the least trustworthy of all pledges to pay.

However, that principal is not what is at issue here, but what does gall is the IMF’s glib reliance on the sneaky, archly legalistic, announce-it-once-the-banks-are-closed repudiation of existing agreements by a borrower which has not only promoted itself as the one true guardian of the people’s well-being, but which has frequently given its subjects precious little choice but to trust a goodly part of the surplus they have wrung from their already sorely-taxed income to those same instruments whose terms the state is now unilaterally amending in its favour.

As yet one more example of the sinister creed of ‘Gemeinnutz geht vor Eigennutz’, this betrays the classic statist proclivity to view all notionally private property as really belonging to the Collective, even if this is rarely expressed so clearly today as it was when last elevated into a central tenet of axe-and-bundle political theory in the 1920s and 30s.

“What’s yours is only truly so to the extent that we, the functionaries of the Hive, do not decide that we have a better use for it and so do not exercise what we insist is our prior claim to it,” they imply, though a little more disingenuously than heretofore.

Having ignited an all too short-lived burst of outrage at last year’s more overt Visa proposal to go for a straight confiscation of 10% of ‘wealth’, this latest business of simply denying people an exit route has the poisonous virtue of being more subtle in its operation and therefore of being more likely to pass into effect all unremarked, even if the effect upon those being locked in would be broadly equivalent in many respects.

Moreover, for all the weasel words uttered in the Fund’s blueprint about limiting moral hazard, the plan explicitly endorses what it archly terms the ‘reprofiling’ measure on the grounds that it serves to deliver a ‘larger creditor base’ into the meat-grinder and hence helps limit damage to ‘longer-term creditors who would have otherwise had to shoulder the full burden of the debt reduction’ As an added bonus, stiffing one’s existing creditors in place of begging a payday loan from Uncle IMF ‘…increases the chances of a more rapid return to the market, as the debt stock will be less burdened by senior claims’ – i.e., those emanating from the IMF itself. A third, tacit advantage would be that since the IMF would not be not committing an actual monies, there need be no debate among its members about the implementation of such a programme, while the softening of the criteria calling for its use from one where the state’s finances are categorically ‘unsustainable’ to one where there is a mere inability to rule out the arrival of such a contingency drastically lowers the nuclear threshold.

One might object that the very knowledge that such steps could be taken would be enough to destroy any residual element of ‘sustainability’ with which a given sovereign’s budget might otherwise be imbued. If people became aware that in buying a 3-month T-bill (and buying it at vanishingly small rates of interest at that) they were also selling their overlords a 30-year put, or that the YTW calculation of their security really ought to include the chance of a 10% principal reduction, would they not try to incorporate this in its price, thereby pushing up yields and so aggravating any incipient funding difficulties? Might they, indeed, not halt their discretionary purchases altogether and so advance rather than retard the onset of the crisis?

Given that they are each, in their own way, subject to the compulsions of so-called ‘prudential’ regulations with regard to the assets they must hold to ensure their solvency and liquidity, would such ‘captives’ as the banks, pension funds, and insurers thus be left the only buyers outside of the ever-eager to oblige central bank? A moment’s consideration of what could happen to the most fragile of these – the already-impaired banks – if their assets were suddenly to suffer another sizeable mark down as a result of state defalcation shows why the IMF wants the universe of the afflicted to be as all-inclusive as possible. That way, however large the absolute loss might be, the percentage loss to each holder could be conveniently minimized as the poor individual innocent was once again mulcted to provide a subsidy for the rich, corporate players whose fate is so closely entwined with that of their overlords.

Thus, under the terms of this new wheeze, we might imagine a day when the following missive drops onto the doormat of the Forgotten Men and Women up and down the country

“Dear Grandma and Grandad, thank you for making the valiant effort over these past decades to achieve a measure of self-reliance in your dotage and for allowing us jacks-in-office full use of your savings in the meanwhile as both a means to fulfil our political ambitions and as a way to act out our own economically-illiterate and usually illiberal prejudices at the expense of you and yours.

“Sadly, it transpires that we have not only wasted a goodly part of your savings, but we have greatly added to the host of irredeemable promises which we made to you, in the form of a mountain of even more pressing pledges issued to the Biggest of Big Fish in the financial markets. So that we do not entirely dissuade these latter sophisticates from again indulging our follies at the earliest opportunity, we shall now have to ask you to share – and thereby greatly to reduce – their pain.

“Be assured, however, that the loss for which you have my heartfelt sympathy will patriotically ensure that we can continue to live well beyond our means. In this way your sacrifice will see to it that the least possible harm will come to any of us in the political classes (a.k.a. the agents of your misfortune), to our army of placemen, patronage-seekers, and dole-gatherers, or to our plutocratic enablers for – as the IMF puts it – ‘…resources that would otherwise have been paid out to creditors will have been retained [to] reduce [our] overall financing needs.’ Nor will we have to suffer the indignity of modifying our existing approach overmuch by actually only spending money on the things for which you, in true democratic fashion, have openly voted the taxes since – here let me cite those marvellous chaps in Washington, once again – ‘resources could be efficiently employed to allow for a less constraining adjustment path.’, i.e., to allow one demanding as little fundamental ‘adjustment’ as possible.

“I feel confident you will join me in looking forward with some enthusiasm to the next, inevitable ‘reprofiling’, just as soon as we can arrange to overspend enough to make one necessary once again. Should I have already laid down the heavy burden of selfless public service by the time this comes about and gone instead to my just reward as a highly-paid ‘consultant’ to a global investment bank, I would urge you to give your full support to my successor, of whatever political stripe he or she may be. In such an event, there will, of course, be precious little different in the treatment you receive at the hands of any of the mainstream parties as currently constituted.

“Yours Insincerely, The Minister of Finance.”

It is all too easy at present to make fun of the IMF, though in so doing we should bear in mind that such ridicule is perhaps the only weapon we have in our fight to prevent it from lending a spurious air of rationality to the worst predilections of our national nomenklatura.

A case in point is that, at the conclusion of its periodic, Article IV review of the economic condition of the homeland of so many of those in the upper reaches of the Fund, the website prominently carried the triumphant banner, “France: Policies on the Right Track“!

Truly, you could not make this up. For a slightly less self-justificatory assessment, one only has to trawl briefly through the Bloomberg series or consult the most recent verdict of the official ‘auditor’ of the nation, the Cours de Comptes.

There it becomes readily apparent that while the two decades prior to the first oil shock saw Real GDP, ex-government trend upward at a 5.5% annualized rate, and the next three decades managed 2.3% compound, the last seven years have seen no progress made whatsoever. Similarly, real capital formation by non-financial business has decelerated from 7.5% to 2.9% to zero over those same divisions of time. Exports stand at close to a 6 ½ year low and two-way trade at the weakest in more than three years. Industrial output – a whisker off the worst since the rebound from the GFC – lies 13% below its peak and hence no higher than it first reached in 1988

Government expenditures, meanwhile, have swollen to a record 58% of overall GDP, 80% of private, with taxes some 4-5% behind. These are levels only exceeded in the EU by Finland, Denmark, Greece, and Slovenia. The EU-calibrated debt:GDP ratio has risen by 30% of GDP since the Crash and by 12% since 2010 alone (that latter a slippage of 15% compared to the German pathway from an almost identical starting point). Here, fast approaching €2 trillion outright, it stands at 94% of overall GDP and therefore at 120% of that of the private component out of whose income that debt must be ultimately serviced.

Yes, policies are indeed on the right track, assuming that track itself is an economic highway to hell.

Given the foregoing, it was of note that the Governor of the Banque de France, Christian Noyer, insisted over the weekend that it might be highly counter-productive to speculate publicly about any programme of even partial debt repudiation.

“This all corresponds to a somewhat contrived definition of sustainability and ignores the highly disruptive effects…besides, it relies on a very pessimistic growth outlook,” he argued.

“Once one starts not to pay ones debts, borrowing becomes very expensive and the impact on growth greatly exceeds that of managing a gentle reduction in debt.”

The only problem with such a judgement is that M. Noyer’s preferred – if sometimes implicit – remedy is for a reinforcement of the policies which have so signally failed France over the past several years – viz., further extreme monetization of assets (to include equities, if need be) and a weaker currency.

As a result, we find ourselves ensnared in a nest of Keynesian paradoxes and economic canards. We need more investment, we are told, but the only means we can imagine to stimulate it is to lower interest rates. We understand that debt levels are too high, but we are so terrified that they might actually begin to be reduced that we subsidize profligacy as the default option of policy. We fret that prices of assets are rising as a result, not the price of labour (which we implicitly want to increase so we can reduce debt ratios, rather than debt itself) and in order to offset a form of inequality we ourselves have engendered, we stultify an economy already overburdened with rules and regulations with that en vogue form of top-down, baby-with-the-bathwater interference we style ‘macroprudential’ policy.

We want to see more people in work, on the one hand we work manfully to introduce ingenious tax and benefit ‘wedges’ which act to discourage marginal job seekers and, on the other, we call for the cost of labour to be raised through higher minimum wage rates (and or plain-old monetary inflation). We decry the fact that businesses will not hire while lowering the prospective economic returns to such hiring by seeking to tax profits more heavily.

The reality is that it does not have to be like this. The curse of macroeconomics is that it takes what should be a crude metalanguage which merely attempts the convenient shorthand of describing an impossibly complex but largely self-organising whole using a few, hopefully representative general features and attempts to elevate it into a rigorous, cybernetic control system to be twiddled and fiddled by the fingers of Philosopher Kings. Given this assertion, let us try instead to work from the other – the microeconomic – end and see if we can shed a little light on this dark and dismal scene.

If Robinson Crusoe wishes to survive his enforced sojourn on his remote island, he must only engage in such activities as provide him with a flow of the needs – at their most elementary, sustenance and shelter – that is at minimum no smaller than their accomplishment costs him in the expenditure of time and effort. The more astute he is in doing this, the more alert and adaptable he is in going about it, the wider will be the margin of success he enjoys, the more rapidly his most essential requirements will be satisfied, and the sooner he can move on to meeting a broader range of desires and to building up a precautionary reserve against misfortune.

It should then be obvious that, when Friday washes up over the reef, Crusoe – unless driven by an inexhaustible fund of potentially-self-endangering altruism – will not be able to offer his new companion an ongoing share in his accomplishments, free access to his stock of implements, or the instant ability to draw upon his, Crusoe’s, hard-won skill and understanding if Friday does not at the very least act in a manner which exacts no net toll of Crusoe (including the unseen one of foregoing better opportunities for gain in their use elsewhere). In fact, he would be unlikely to take the risk of depleting his own scarce resources and of squandering his finite energies if Friday does not contribute something beyond such a bare material parity, the which surplus he, Crusoe, will be able to use to increase the future possibilities open for the two of them to exploit.

If we stop to think about it clearly, Crusoe’s surplus income – and let us not be shy to call this his profit – is what enables him firstly to improve his own standard of living (to invest) and eventually to afford Friday the means with which to leapfrog away from the perils and privation of shipwrecked destitution to the more secure and less impoverished existence he may lead if he contracts to work under the guidance of Crusoe’s entrepreneurial instincts while utilising some of Crusoe’s already-produced stock of capital. For this, Friday earns himself the right to avail himself of an agreed proportion of the goods (the income) they generate through their mutual collaboration. Once more, it is Crusoe who rightly accedes to and disposes of any subsequent excess which he by his craft, and they two by their sweat, can conjure out of the unforgiving surroundings of their savage little world.

Assuming Crusoe to be as diligent in his way as Friday is in his, the generation of each successive surplus will allow Crusoe progressively to improve the quality, quantity, and variety of means they each can employ, so that Friday, as well as he, can enjoy those better returns on his effort which accrue from the fact that his capital endowment has risen, those better returns being what we call a higher real wage.

It is all very well to bewail the fact that, in the modern world, the admirably rugged individual, Crusoe, has been transformed into that bête noire of the scribbling and scriptwriting classes – the faceless and vaguely sinister Crusoe Incorporated – and it may equally be a matter of unthinking dogma that ‘profit’ like ‘property’ is theft, but the truth remains that what applied to our pairing of Lost-prequel cast members still applies in the disembodied world of distributed shareholding and managerial agency: profit is both the sign of entrepreneurial success and the seedcorn of capital provision; labour will only be – can only be – hired if the value of its product exceeds the cost of its retention; and the more capital each worker has at his disposal (including the kind contained between his ears), the greater will be the likely worth of his product and hence the more lavish his reward.

There are no short cuts on offer. Or perhaps none which bear up to the test of self-sustainability. Thus, the would-be macro-puppeteers of the kind characterised by deputy Bank of England governor Jon Cunliffe when he waxed metaphorical in a recent speech about how the Old Lady’s duty was to “steer” the economy “at the highest speed that can be achieved…down a winding road” can be seen both to seriously overate their powers to do good and to vastly underestimate their proclivity to do harm.

Allow a man the scope both to make and keep a profit (to win receipts greater than costs, adjusted for the passage of time); place no restrictions on the terms of the mutually-beneficial, freely-contracted co-operation into which he enters with less adventurous, but no less assiduous, persons as he seeks to do so; do as little as possible to add to the costs of any such contract (monetary manipulation herein included) and thus to dissuade either party from entering into it; subject our man to no deterrent to ploughing the fruits of this cycle’s endeavours back into the attempt to make those of the next more succulent and more plentiful and, by and large, though failures will occur and frauds will not be unknown, all those involved will flourish – even if they happen to live in a France where, the last we heard, the laws of economics still applied and where it was not the people who were failing but those who ruled over them.

But let us not to be too unfair to the worthies who reside among the splendours of the Elysée, the Matignon, or Bercy: as the Cours de Comptes points out, the performance of their counterparts on the other side of the Channel has in many ways been just as unimpressive.

The UK, after all, still runs a deficit of around £100 billion a year, 6% of total and 8% of private sector GDP. Net debt of more than £1.4 trillion amounts to 85% of overall and 110% of private GDP (even without counting in the obligations pertaining to the bailed-out banks) and has doubled in five years, tripled in nine. Total spending has risen by a half since 2005, climbing 5% of pGDP in that time to reach a very lofty 52.5% – and this despite all the bleating about swingeing ‘austerity’. The £650 billion which comprises that churn amounts to around £200, or more than 31 hours of minimum wage pay, per week for every man, woman, and child in the country. Not entirely unrelated is the fact that the current account gap yawns as wide as £75 billion a year, equivalent to what is fast approaching a post-war record of 4.5% of total, 6% of private GDP.

Here, too, the optimists have been somewhat deceived by their hopes of undergoing a true economic revival. Though the series is bumpy, manufacturing output in May appears to have stalled, suffering its largest drop since the harsh winter of 2013 and leaving overall industrial production barely 3.5% off 2012′s 27-year lows and still having 80% of its GFC losses to make up.

Despite the glaringly obvious construction that the UK is once more undergoing a lax money, too-low interest rate, classic, Tory Chancellor pre-election boom – all about non-tradables, a housing mania, an excess of imports, and plagued with soft-budget government incontinence – the myopically GDP-fixated macromancers cannot resist becoming ecstatic at the results.

Jack Meaning, a research fellow at the highly-regarded National Institute of Economic and Social Research, for example, was quoted this week in the broadsheets in full Trumpet Voluntary mode:

“The outlook is very positive,” he exulted. “Growth now is very much entrenched, and given all the positive data that has come out, it looks like growth is here to stay.”

Hmmmm! While it is true that the Carney-Osborne duumvirate will do nothing to restrict access to the punch bowl:

before the Scottish Independence referendum;

before the UK General Election next spring; and

if it can be managed, before our beloved Governor quits (in 2017…?) to leave his palm print on the pavement of Grauman’s Chinese Theater en route to what is rumoured to be his apotheosis at the pinnacle of the Canadian Liberal Party hierarchy,

then the longer this particular locomotive of ‘growth’ progresses along its current track, the more certain we can be that it will terminate in the same, drear Vale of Tears where all its predecessors have hit the buffers.

As for the US – where policy has retrogressed through some sort of Phillips Curve warping of the space-time continuum to make un(der)employment the only real matter of concern – well, let’s not get too bogged down in the to and fro about Birth:Death adjustments, the household versus the establishment survey, competing explanations for a falling participation rate, part-time versus full-time job issues and all the rest of the minutiae.

Taking the data at face value, private sector jobs (adding agriculture and self-employed to the establishment total) seem to have risen over the whole of the last four years by a remarkably steady 180k a month, 1.8% a year, for a cumulative 870k gain which is pretty much in tune with the simultaneous official estimate of 910k in population growth. While similar to the pace mapped out in the 2003/07 expansion (then 210k and 1.6% off a higher base), this is one of the slower episodes in the last half century. If we calculate the real wage fund (2.1% outright and 1.4% per capita) or real private GDP (3.0% outright and 2.3% per capita) we get similar results: the US private sector has been expanding reasonably, if a little tardily, in real terms though it has also been more obviously lagging in nominal ones.

Why no faster rebound? Certainly not because interest rates are too high, or government outlays too parsimonious, or because the ‘low-hanging fruit’ of human progress has been well and truly plucked to leave us the unpalatable choice between ‘secular stagnation’ and an invigorating burst of warfare.

Read the Crusoe paragraphs again: incentives matter, especially at the margin. And among the many perverse incentives to limit hiring we have, just as in the 1930s, a whole host of programmatic and regulatory barriers to take into account – extended benefits, changes to health care, access to classification as ‘disabled’, unemployment insurance rules, and so on.

Though America is not as sorely afflicted with these hindrances as are many Western nations, it is not hard to see that the sort of work done by Richard Vedder and Lowell Galloway, by Lee Ohanian, by Robert Higgs, and lately by Casey Mulligan all come back to the same basic conclusion: that for the micro-economics of job-creation to take hold, the legal and institutional framework must not only be conducive to fostering the hope of gain among those seeking to employ both capital and labour (including their own), but it must be straightforward to negotiate and stable in its composition. Neither constant bureaucratic tampering, nor wrenching shifts in fiscal or monetary policy – with all the wilder swings they transmit via the financial markets through which they act – can contribute much that is positive, for all the arrogance of the Colossi who never cease to promulgate them.